How much do I need for a rainy day?

Saving for a rainy day isn’t for everyone, but it’s certainly a financially savvy savings goal to have. If you’re new to the world of emergency funds, here’s everything you need to know.

Knowing how much you’ll need for an unexpected expense is a near impossible question to answer. You don’t know when it’ll be needed, what it’ll be needed for, or how long you’ll have to act. What you do know though, is that you need it.

Whether your emergency pot's currently at a big fat zero or you’ve already got a decent amount set aside, we’ll talk you through everything you need to know to build your funds and make your money work harder for you.

Why do I need emergency funds?

Whether it’s your boiler’s on the blink, the car’s on its last legs or there’s leak in the roof, life throws us all unexpected curveballs from time to time, and some are more expensive than others. Having that bit set aside will mean you won’t be left in the lurch.

Some common uses for emergency funds include:

- Car repairs;

- House repairs;

- Unexpected costs, like an emergency dentist appointment, and

- Everyday expenses if you lose your job.

Having an emergency fund gives you the peace of mind of knowing you’re financially prepared if something goes wrong. If you don’t have any savings stashed away and you’re hit by unexpected costs, you might be forced to take credit out without really thinking it through.

While taking out credit in itself isn’t a bad thing, there’s no guarantee you’ll be accepted and you might be charged interest on what you borrow - making it a more expensive option.

How to start saving

First things first, think about a target amount for how much you want to save. Having a concrete number in mind will help to put the building blocks in place to get there.

Once you’ve got the figure written down, it’s time to do a bit of number crunching. You don’t want to pour all of your disposable cash into your emergency pot, but at the same time, it’s best to put away enough to make a difference.

So, to do this, work out how much you’re currently earning and spending on essentials - like bills and groceries, and then see how much cash you’ve got left over. From this, decide on a realistic amount you can afford to part with each month and then commit to putting it aside.

To make sure you stick to your goal, it might be worth setting up a standing order so the amount automatically comes out of your account each month - this’ll remove the risk of you forgetting or accidentally spending it!

How much do you need for a rainy day?

There’s no set sum for this. For a bit of guidance though, it’s a good idea to try and save up enough to cover three months’ worth of essential outgoings. In theory, this should be enough to finance smaller emergencies - like a broken boiler, and longer-lasting blows - like losing your job.

Sticking with the three-month rule, the amount you should aim to save will depend entirely on your circumstances. So if you fork out £800 a month on things like mortgage payments, bills, food and fuel, you’d need to aim for around £2,400 in your emergency fund. If you spend more than this, you should aim to save more, and if you spend less, you might be able to get away with saving less.

The frustrating thing about unexpected emergencies, is that there’s just no way of knowing how much they’ll cost. But, even if it ends up being more, having this sum set aside is certainly a better starting point than none at all.

When not to save for a rainy day

An emergency fund’s a nice safety net to have, but it’s by no means an essential savings goal. If any of the below apply to you, it might not make sense to save for a rainy day - at least for the time being, anyway:

You’ve already got insurance in place that covers you for emergencies.

When to stop saving

If your emergency savings pot is flush with cash you might be thinking “great, I’m covered for anything!”, which isn’t wrong at all. But, you could be missing out on some great interest-earning opportunities - depending on where it’s sat.

To make sure you’re getting every penny out of your savings, if you haven’t already, it might be worth looking into moving some of your emergency funds into a savings account or investment home.

Or, if you’re currently repaying debts, it could be worth clearing or reducing your outstanding credit with some of your rainy day pot to reduce the amount of interest you’re paying. You could then look to refill your emergency funds with the money you’re saving on your monthly repayments.

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